Critical Differences Between Chapter 7 & Chapter 13 Bankruptcy

As a bankruptcy attorney, I know the importance of thoroughly understanding and keeping current with federal bankruptcy law. Should you elect to schedule a meeting with us, my staff will be able to provide you with all of the information you need to help me to help you make a decision regarding filing for bankruptcy. With the benefit of the information that we will exchange at and following your Free Consulation, I will personally recommend to you what type of bankruptcy I feel is appropriate for your financial circumstances, if bankruptcy is the means for you achieve your personal financial objectives. Having an experienced bankruptcy attorney at your side will give you the best chance to obtain the results you need from your bankruptcy. Below are some differences between the two most common types of bankruptcy.

Chapter 7 Bankruptcy

If you have overwhelming debt that you find you just cannot pay due to circumstances beyond your control, such as the loss of a job, divorce, foreclosure or unexpected medical bills, then Chapter 7 is possibly the type of bankruptcy you need. If you do not have the means to repay your debt and just don't see a way out, the bankruptcy laws allow you to file for this type of protection from your creditors. When the bankruptcy is filed, all of your liabilities and assets will be reviewed by the Bankruptcy Trustee assigned to your case. The bankruptcy laws allow you to retain a modest amount of assets without strings attached, including your personal property to a certain dollar level, and your residence, without regard to its value. But even if your assets exceed your personal allowance, you may still be permitted to keep those assets by paying money over time to your Bankruptcy Trustee. I will advise you before your case is filed about the projected cost involved to retain those assets, as you eliminate your debt in a Chapter 7 case. Filing a Chapter 7 bankruptcy is a relatively smooth procedure, and the entire process lasts approximately three months in many cases. But you get immediate relief as your creditors are required by the bankruptcy law to cease all efforts to contact you as soon as your bankruptcy case is filed. This immediate relief is the first step for many individuals to enjoy their Fresh Financial Start.

To determine whether you qualify for a Chapter 7 Bankruptcy case, the court requires us to evaluate your financial situation through a "means test". The purpose of this is to determine whether you have the "means" to repay certain aspects of your debt. If it appears that you have the ability to repay some of your debt, then a Chapter 13 bankruptcy may be more appropriate. At The Law Offices of Scott W. Spradley, P.A., I will carefully review your financial situation with you in order to determine the best course of action for your specific circumstances. For complete information on a Chapter 7 bankruptcy filing, contact us to schedule your Free Consultation.

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, you would propose a repayment plan to make installments to creditors over three to five years. If your current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period "for cause." If your current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. During this time the law forbids creditors from starting or continuing collection efforts.

Chapter 13 offers individuals a number of advantages over liquidation under Chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they must still make all mortgage payments that come due during the Chapter 13 plan, on time. Also, under the right circumstances, Chapter 13 allows individuals to strip their second mortgage from their home. For individuals who qualify for this relief, once the Chapter 13 plan is successfully completed, the individuals emerge from bankruptcy without a second mortgage on their home. Another advantage of Chapter 13 is that it allows individuals to reschedule secured debts (other than a first mortgage for their primary residence) and extend them over the life of the Chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on "consumer debts." This provision may protect co-signers. Finally, Chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a Chapter 13 Trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under Chapter 13 protection.

I would be pleased to review your financial situation with you to determine if you can find debt relief through Chapter 7 or Chapter 13 bankruptcy. A successful bankruptcy could greatly improve your future financial situation and give you a new start in life.

The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship.